BP slashed its dividend for the first time since the Deepwater Horizon disaster in 2010 as the oil major accelerates a strategic overhaul of its business under a new chief executive in the wake of the severe hit to industry finances from the coronavirus pandemic.
The company cut the shareholder payout by 50 per cent for the second quarter to 5.25 cents a share, marking a turnround since the start of the year when BP’s confidence about cash generation led it to raise the dividend to 10.50 cents.
The collapse in energy demand triggered by government measures to curb the spread of coronavirus has badly affected the entire energy sector. Brent crude, which traded at $70 a barrel in early January dropped to below $20 in April. It is now hovering at about $44.
In the three months to June 30, underlying replacement cost losses — the measure tracked most closely by analysts — were at $6.7bn versus a profit of $2.8bn in the same period last year. Analysts had forecast a loss of $6.8bn, with the figure including exploration asset write-offs which are not treated as one-off items.
The reported loss tallied at $16.8bn, which is the biggest since the huge charge related to the Gulf of Mexico accident a decade ago.
BP said the dividend cut is a rebasing of the payout and comes as chief executive Bernard Looney, who started in his role in February, embarks upon a new strategy for the company to turn it into a net zero emissions company.
Mr Looney has said the pandemic will make it even more urgent to drive down costs, reorganise the business and set it up for a transition to cleaner forms of energy. BP said it expects restructuring costs of around $1.5bn in 2020.
BP said over the next decade it aims to increase its annual low carbon investment 10-fold, to around $5bn a year, boost renewable power generation to 50 gigawatts, while shrinking its oil and gas production by 40 per cent compared with 2019.
The company, which has said it will commit to returning at least 60 per cent of surplus cash as share buybacks, is planning to cut emissions as it invests in renewables, hydrogen and carbon capture technologies.
But the bulk of capital spending over the next few years — at around $14bn-16bn — will still be focused on oil and gas.
Until now, BP had pulled on an array of financial levers to protect shareholder handouts. It had said it will cut capital spending to $12bn from initial expectations for $15bn and costs by $2.5bn by the end of next year compared with 2019 levels. It deferred some exploration and appraisal activities, secured new credit lines and tapped the bond market for billions of dollars.